The world’s largest asset manager is calling on regulators to set best practices for the way funds are structured globally and to review investor redemption rules in different markets.

In an 18-page paper submitted to US and international policymakers, BlackRock highlighted “considerable variation between regulatory regimes” for different types of funds in different markets.

It specifically encouraged regulators to take steps that minimise so-called run risks when investors shift large amounts of money out of funds.

The document, seen by Financial News, spells out the roles played by asset owners versus fund managers or intermediaries and makes recommendations for changes. It suggested that if funds were structured so that asset owners such as pension funds and insurers pay for the cost of net flows “whether that be in terms of ‘herding’ into an asset class or rushing out, systemic risks would be mitigated”.

Barbara Novick, vice chairman of BlackRock and an author of the paper, told Financial News: “We’re not saying one size fits all; it’s saying let’s come to an agreement on this concept of a fund structure for investor protection to avoid the first-mover advantage, to avoid the run risk and mitigate systemic risk.”

Novick said that the best practices could be set at an international level and implemented locally.

In the US, the process of reviewing the potential risks posed by asset managers is being run by the Financial Stability Oversight Council, a body with the ability to designate firms as “systemically important".

Members of the fund management industry have pushed back against the idea of greater regulation and criticised the FSOC for a lack of a clear scope in its work. Among its considerations are whether to designate the largest asset managers or funds as systemically important.

The FSOC held a conference this week in Washington that included several panels of asset management executives and academics who shared their views on the issue.

Novick said the BlackRock paper was an attempt to better identify regulators’ areas of concern and explain the way the fund management industry operates. She said: “Right now it’s too broad and hard to pin down a solution without knowing really what you want to solve for.”

Vanguard chief executive William McNabb III told lawmakers in Washington earlier this week that he was “deeply concerned” by the FSOC's work.

The International Organization of Securities Commissions, a group of global securities regulators, is working with the Financial Stability Board on a similar initiative for non-bank, non-insurers at an international level. David Wright, secretary general at Iosco, said of the effort: "We're all struggling to get this right. You've got to do this in a totally logical way and think of where the risks are, the concentration risk, the run risk."

Iosco has written several papers on fund valuation, liquidity risks and redemption processes since 2012. BlackRock now wants regulators to look at those factors in tandem and outline guidance on fund structure that minimizes "run risk”.

The authors of the new BlackRock paper suggested that regulators could, for example, establish varying rules for money market funds, hedge funds, less liquid fund, liquid funds and other types of private funds. Those rules, however, would be consistent across asset classes.

The paper also argued that existing accounting, tax and regulatory requirements impact investors' asset allocation decisions. If regulators want that to change, BlackRock says that they may have to review those policies.